Five Reasons Immigration Creates Economic Benefits
First, if each new immigrant lowers living standards, new people also lower living standards. But without new people, America’s economy would lack the workers it needs to operate. This highlights an economic principle that economist Deirdre McCloskey calls “human resourcefulness.” It is the idea popularized by the late Julian Simon that people are the “ultimate resource,” that new people should be welcomed because all production, even production of environmental goods, ultimately relies on people. As the philosopher John Locke once said, “People are the strength of any country… the more we have the better is it for us.”
Second, wealth comes primarily from specialization and trade, as Adam Smith explained in The Wealth of Nations. Smith and his contemporaries saw dividing labor among more people allows each to specialize in one area and rely on others for other needs. Thus, wealth increases and countries in turn permit more voluntary trade to occur—the opposite, producing everything that one consumes, is poverty. Therefore, prosperity was directly related to the quantity of traders permitted access to an economy, whether through international trade or immigration. As much research has found, free trade and immigration create wealth for Americans.
Third, perhaps the most significant reason that trade and immigration create wealth for Americans is because some individuals have a comparative advantage in production of certain goods. The 19th century economist David Ricardo first explained how this worked in terms of trade between countries, but it works the same between any two people or groups of people. Imagine that Americans can produce a gallon of wine and beer at the relative costs of $10 and $20 respectively, and foreigners can produce them at $40 and $30. In absolute terms, Americans can produce both more efficiently, but if they chose only to make wine and trade wine for beer produced by immigrants, they still save $10.
Thus, even if Americans could provide goods more efficiently than immigrants, we still would be better off to trade with immigrants for them. Comparative advantage explains why immigrants do not depress most Americans’ wages in the long-term because they complement natives rather than compete with them for jobs, as many recent studies have found. Immigrants specialize in labor intensive occupations and Americans in language and education intensive occupations—through trade, both sides benefit.
Fourth, Jean-Baptiste Say, the 19th century French economist, explained how it was possible all workers could benefit, even in the presence of intense labor competition. The Law of Markets (or Say’s Law) states that when a worker creates something of value—say, when a carpenter makes a chair someone wants—the income he receives for the chair turns into demand for other goods and services elsewhere. This implies that even if an immigrant took a job of an American in agriculture, his income will demand other jobs elsewhere.
Say said that if labor competition lowered living standards, a worker would be better off in a “small deserted and semi-barbarous town.” He wrote that “Though in no fear of a competitor, he could sell but little, because little was produced; whilst at Paris, Amsterdam, or London, in spite of the competition of a hundred dealers in his own line, he might do business on the largest scale. The reason is obvious: He is surrounded with people who produce largely in an infinity of ways.” Fewer producers means fewer buyers, which hurts everyone, as recent immigration research has found.
Fifth, Frédéric Bastiat’s lesson of the broken window also applies. It may seem a broken window creates wealth by creating demand for new windows, but this ignores the lost demand for other services if the pershon whose window is broken had been able to spend on something else. This is exactly how immigration and trade restrictions act—they seem to increase wealth by reducing competition for workers and businesses, but in doing so, they make goods and services less plentiful overall, which hurts everyone.
As Bastiat wrote in Economic Sophisms, “International barriers force capital and labor in each country into channels where they encounter greater difficulties… the general result must be a diminution in production… fewer goods capable of satisfying the wants of the consumers. Now, if there is a general reduction in the quantity of goods capable of satisfying people's wants, how is the share of the workers to be increased?” As the most recent research on prices and labor has found, fewer services mean higher prices, which means immigration restrictions make America poorer.